The omission of an adjusting entry to recognize the periodic

The omission of an adjusting entry to recognize the periodic use of a prepaid expense will: Match the effect of this error on each component of the balance sheet.) Total assets Choose ] Choose ] No effect Total liabilities There is not enough information to correctly answ Overstated Understated Total stockholders\' equity

Solution

Answer

In case of TOTAL Assets-will lead to Total Asset being OVERSTATED. This is because, the periodic used amount need to get transferred to Income Statement y debiting Expense account, and crediting Prepaid Expense account. In absence of such an entry, Total Assets (which included Prepaid Expense) will be OVERSTATED.

In case of Total Liabilities- There will be NO EFFECT. Omission of such adjusting Entry regarding Prepaid expense (an asset) does not affect LIABILITIES amount.

In case of Stockholder’s Equity- the same will be OVERSTATED. This is because, when such entry is omitted, Income Statement is not debited by the periodic (adjusted) expense. As a result, the net income would be overstated. This will result in Overstatement of Retained earnings and Hence Over statement of Stockholders’ Equity.